Facebook Fans Can Impact Stock Prices

Pressing the like button on a company's Facebook page can have a much more wide-ranging impact than you might have guessed. A new study finds a possible correlation in the relationship between the financial performance of public companies and their consumer following or fan count on Facebook.

What the researchers found was that the more popular the company was on Facebook, the better its stock price seemed to do.

"The results suggest that changes in fan count trends could signal changes in consumer brand company stock prices, creating the potential for new applications of social media popularity metrics as economic indicators," the researchers said.

There is an association between a company's Facebook popularity and how active its Facebook users are and its stock price, Pace University researcher Arthur O' Connor told BusinessNewsDaily.

"I am not saying because these are the most popular brands that have the greatest following of consumers on Facebook that that causes stock prices to go up," he said. "The study suggests a relationship between the popularity or greater numbers of people thinking and posting comments or sharing experiences about brands and the economic performance of the brand."

O'Connor, in association with social media analytic service Famecount, which ranks and tracks social media followers, took the 30 most popular brands on Facebook and broke them into two groups. The first group included companies that sell smaller ticket impulse-based purchases and included Abercrombie & Fitch, Adidas, Aeropostale, American Eagle Outfitters, Burberry, Nike, Puma, Coca-Cola, Dr. Pepper, Krispy Kreme Doughnuts, McDonalds, Oreo (Kraft), Pepsi, Starbucks, Taco Bell, Target, Wal-Mart, Whole Foods and Disney. The second group included 11 companies that offered larger ticket purchases including Best Buy, Dell, Google, Microsoft, Nokia, Blackberry (RIM), Sony, BMW, Harley-Davidson, JetBlue and Southwest airlines.

"Fan counts for the most popular brands associated with small ticket and/or impulse purchases were found to have stronger correlation with their respective stock prices than those for the most popular brands associated with larger-ticket items and/or more complex buying processes," the researchers wrote.

O'Connor believes his research has implications for how brands manage their social media presence.

"The most notable thing is that people need to start to understand that social media really does have some relationship with the conformity of behavior," said O'Connor, an information technology management consultant enrolled in the executive doctoral program at Pace University. "If everyone is thinking about and talking about your brand, that may mean something in terms of your stock price or corporate performance."

With more than 800 million active Facebook users, the significance of these findings can signal a change in the way companies look at social media and its ability to serve as an indicator and even predictor of economic performance. O'Connor said he believes companies will have to be careful how they wield their newfound social media power.

"Popularity is a two-edged sword," said O'Connor. "The more people look at you and think about you (especially) if you do well and do right by your customers, it can be a tremendous benefit. However, if you don’t do those things, it can work against you in a big way. The one thing you can take away from it is that social media is becoming a more respected and established communication channel with customers, investors and the general public. It is something to take just as serious as shareholder communications, marketing communication or other more established communications."